Very early in life, I had three important insights that helped me achieve the things I desired within a year or two after graduating college. These three insights were based upon my observation of the world and years of sitting in a reading chair by the fireplace pouring over history, accounting, economics, philosophy, psychology, ethics, biology, genetics, marketing, biography, and religious books.
These observations hold true whether you are a wildlife researcher or an elementary school teacher, a successful entrepreneur or a clothing designer.
Observation #1: The Two Bucket Principle
It’s slightly more complicated but the basis of my two bucket principle is that, to the degree outcomes can be controlled by individual choice and absent outside context problems, the ultimate life you live depends upon how you allocate “two buckets” of value:
Time: The 525,600 minutes of time given to you every year by God or the universe
Money: Every dollar of capital that passes through your hands
There are influences that can help or hinder your quest. Each of us has an innate capacity for certain types of functions upon which we can improve but not exceed. Regardless of the time and money invested, a man who stands 4 feet 11 inches will never be a successful NBA player. It is important to play to your strengths and work in a field that ignites your passion.
You will eventually become the things to which you allocate your two buckets. It doesn’t matter what you say is important, but what you actually do. You can tell what someone truly values by looking at their schedule and their checkbook register.
And never forget what I’ve already taught you: How you allocate both of these buckets should be driven by what you consider the primary mission of your life. You cannot base your life on other peoples’ priorities.
Observation #2: The Interchangeable Nature of Capital
I then decided that there were several forms of capital (which my family internally called my “theory of capital”). There are psychologists, economists, historians, researchers, and philosophers that have written extensively on each of these forms of capital. In almost all cases, you can exchange one form of capital for another. These forms of capital include:
Physical Power Capital
To understand the interchangeable nature of capital, one need look no further than Hugh Hefner. The 85-year-old multi-millionaire has a houseful of women in the prime of their physical years, who throw themselves at him. He wants their attention and sexual capital and they want his financial and political capital because he can give them financial independence, the lifestyle they desire, and help elevate them to the top of their industry.
Notice that we are not discussing the morality or social costs of certain exchanges of capital, but merely recognizing that it is a law of nature, just like gravity or lift. (E.g., It is illegal and unethical for a politician to accept money for voting a certain way; we call it a bribe. Such as transaction would be an exchange of political capital for financial capital between the two parties and does happen.)
Observation #3: Know the Interplay of Relationships
Newton’s realization that everything is action and reaction is one of the greatest insights in history.
If you understand the relationship between things, you can take advantage of it by paying attention to the world. How do interest rates influence the price of stocks? Bonds? Oil? How do government surpluses or deficits influence the valuation levels of equities and interest rates? How does median life expectancy influence the percentage of an economy spent on healthcare? How do education levels influence pay rates?
By studying relationships between entities, assets, securities, liabilities, people, countries, et. al., you can position your family’s holdings to take advantage of situations that naturally occur from time to time. If you believe inflation is inevitable, it might make sense to borrow money at long-term, fixed-rates to buy assets that keep pace with inflation, effectively letting a government’s out-of-control spending habits transfer purchasing power into your wallet. If you believe there is a relationship between exercising and living longer, you can adjust your lifestyle accordingly.